Nestled between crowdfunding platforms, micro-loan organizations like Kiva, traditional bank financing, and venture capital is Upstart, a lending service designed for recent college graduates and founded by former Google executive Dave Girouard. Think of it as financial support from a generous family member that must ultimately be repaid. This innovative service, which was recently announced, will launch in the fall at several prominent institutions including Arizona State University, Dartmouth College, Rhode Island School of Design, the University of Michigan, and the University of Washington.
Girouard, who previously held a leadership position at Google where he oversaw the creation of Google Docs and Google Apps, conceived this financial venture after observing the struggles of recent graduates burdened by daunting job prospects and student debt. He noted that many individuals with promising startup ideas or research ambitions felt compelled to settle for jobs with larger corporations instead. “I wanted to help keep their entrepreneurial dreams alive,” Girouard explained.
To sustain Upstart, the company gathered investment from a range of notable backers, including Kleiner Perkins, Crunchfund, NEA Ventures, and Mark Cuban, although the total amount raised has not been disclosed.
The core idea behind Upstart is straightforward: provide individuals with the necessary funds to pursue their aspirations, whether starting a tech company or exploring a career in the arts. In exchange for loans that can range from $1,000 to over $100,000, borrowers commit to repaying up to 7% of their future income for a duration of 15 years. For investors, this offers a unique opportunity to support a new wave of entrepreneurs, potentially earning returns of up to 15% along with the satisfaction of contributing to someone’s goals.
Here’s how the process works: motivated graduates with a solid credit history and a clean background can create a campaign on Upstart, detailing their financial needs or aspirations. While there are no strict rules regarding acceptable reasons for seeking financing, the Upstart team primarily envisions supporting individuals aiming to launch businesses, reduce existing student debt while pursuing less lucrative career options (such as theater or unpaid internships), or similar pursuits.
Graduates establish a funding target based on how much future income they are willing to commit for repayment. “We have developed a predictive model for estimating future income based on various educational backgrounds and performance metrics,” Girouard mentioned. With this data, the platform can inform students about how much funding they could secure for a specific percentage of their income. For instance, if Upstart indicates that a borrower can raise $7,500 for each 1% of income they offer to repay, then to obtain $30,000, they would need to agree to give back 4% of their annual earnings for 10 years. Generally, participants can expect to raise between $6,000 and $8,000 for every 1% of their anticipated future income.
Importantly, graduates will not receive funds until their campaign successfully hits its target. Once they gain access to the capital, repayment begins in January following the campaign’s conclusion. To alleviate pressure, borrowers earning less than $30,000 annually will be exempt from repayments. If they defer payments, the repayment timeframe will be extended, not to exceed 15 years.
Investors contribute in increments of $1,000. While there’s no guaranteed return on investment—given the inherent risks—backers can potentially earn interest up to 14.99% in addition to their principal. As Girouard notes, “There’s no absolute guarantee that the principal will be repaid.”
Despite these uncertainties, Girouard is confident that investing in people rather than in traditional companies or tangible products represents a promising approach. This philosophy has long been advocated by venture capital firms, and in Upstart’s case, it may hold considerable truth, reminiscent of a relative who simply extends a helping hand without hesitation.